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Posted by Herb Smith on August 7, 2007, 11:27 pm
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webmas...@onfirebikinis.com wrote:
>> webmas...@onfirebikinis.com wrote:
>>> Recently the IRS notified me that they changed my 2005
>>> return. They took my gambling winnings of $60,000, which I
>>> had indicated on line 21 (Other Income), and decided to call
>>> this self employment income. The result is a new tax bill
>>> of $8,000.
>>> IRS specifically states in their tax guide that gambling
>>> income is to be stated on line 21. Thus, how can they now
>>> justify calling this self employment income when I did
>>> exactly as they reference in their tax filing instructions?
>> After thinking about this some more, the questions are how
>> did you win $ 60,000 and how much earned income did you have
>> from your stated oddupation?
>>
>> The IRS has a fairly sucessful history of fighting claims
>> of "Professional Gambler" as an occupation. There are no
>> professional Lottery, Keno, Slots, or Craps players. But
>> there are professional Blackjack and Poker players. In the
>> latter two, you would have expenses to get to and stay at
>> casinos - unless you were playing at home on the Internet
>> or even worse running the game at your home.
>>
>> Without a full understanding of the facts, I suspect you're
>> going to need a tax professional with audit experience!
>
>> Adams' Rule #1: NEVER represent yourself before the IRS.
> I appreciate all the responses.
>
> I was notified by a letter in which I was given 30 days to
> respond. The winnings came from sports betting, mostly
> football. My income apart from the sportsbetting was only
> around $12,000.
> When I state $60,000 in winnings that is
> after subtracting all my losses.
Aha, that may be part of your problem. Gambling winnings
reported on Line 21 are supposed to be the GROSS WINNINGS,
not netted with expenses. Expenses are an itemized deduction
(NOT subject to the 2% of AGI limitation) on Schedule A. If
you don't have enough deductions to itemize (i.e. must use
Standard Deduction), then too bad. You get to claim the
income, but not subtract the expenses (if any).
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<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
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Posted by Geoff on August 8, 2007, 7:08 pm
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> webmas...@onfirebikinis.com wrote:
>>> webmas...@onfirebikinis.com wrote:
>>>> Recently the IRS notified me that they changed my 2005
>>>> return. They took my gambling winnings of $60,000, which I
>>>> had indicated on line 21 (Other Income), and decided to call
>>>> this self employment income. The result is a new tax bill
>>>> of $8,000.
>>>> IRS specifically states in their tax guide that gambling
>>>> income is to be stated on line 21. Thus, how can they now
>>>> justify calling this self employment income when I did
>>>> exactly as they reference in their tax filing instructions?
>>> After thinking about this some more, the questions are how
>>> did you win $ 60,000 and how much earned income did you have
>>> from your stated oddupation?
>>>
>>> The IRS has a fairly sucessful history of fighting claims
>>> of "Professional Gambler" as an occupation. There are no
>>> professional Lottery, Keno, Slots, or Craps players. But
>>> there are professional Blackjack and Poker players. In the
>>> latter two, you would have expenses to get to and stay at
>>> casinos - unless you were playing at home on the Internet
>>> or even worse running the game at your home.
>>>
>>> Without a full understanding of the facts, I suspect you're
>>> going to need a tax professional with audit experience!
>>
>>> Adams' Rule #1: NEVER represent yourself before the IRS.
>> I appreciate all the responses.
>>
>> I was notified by a letter in which I was given 30 days to
>> respond. The winnings came from sports betting, mostly
>> football. My income apart from the sportsbetting was only
>> around $12,000.
>>
>> When I state $60,000 in winnings that is
>> after subtracting all my losses.
> Aha, that may be part of your problem. Gambling winnings
> reported on Line 21 are supposed to be the GROSS WINNINGS,
> not netted with expenses. Expenses are an itemized deduction
> (NOT subject to the 2% of AGI limitation) on Schedule A. If
> you don't have enough deductions to itemize (i.e. must use
> Standard Deduction), then too bad. You get to claim the
> income, but not subtract the expenses (if any).
"Gross Winnings" are the amount he won less the amount he
bet; which is what he did. He didn't subtract any expenses;
losing bets are not expenses, they are losses.
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
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Posted by Seth on August 10, 2007, 2:03 am
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> "Gross Winnings" are the amount he won less the amount he
> bet; which is what he did. He didn't subtract any expenses;
> losing bets are not expenses, they are losses.
Is it the amount he won minus the total amount he bet, or
the amount he won minus the amount he bet on the winning
bets?
If he places a bet of $5,000 and wins, he gets $10,000 back.
Gross winnings is $5,000 on that bet.
Suppose, in addition, he placed a bet of $2,000 and lost.
Are his gross winnings $3,000 or $5,000? Suppose both bets
were somehow placed in one transaction?
At the extreme, "gross winnings" can't be calculated.
Consider a poker player who wins 100 hands over the course
of an evening. He knows how much he started with and how
much he ended with, but it's practically impossible to keep
track of winnings and losses on each hand.
If he's allowed to count cash out - cash in as winnings, why
can't someone who opens an account at a sports book do the
same?
Seth
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ------------------------------------------------------- >>
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Posted by Mark Bole on August 11, 2007, 2:19 am
Please log in for more thread options Seth wrote:
[...]
> Is it the amount he won minus the total amount he bet, or
> the amount he won minus the amount he bet on the winning
> bets?
Wasn't there a long discussion of this topic in the last
year or two on this forum, covering esoteric topics like
after-tax basis in lottery tickets and such?
> If he places a bet of $5,000 and wins, he gets $10,000 back.
> Gross winnings is $5,000 on that bet.
Yes. Placing a bet does not require any money to change
hands at all. You and I can shake hands on it if we trust
each other, or if I employ vicious henchman who will break
your kneecaps if you don't pay up.
However, often one or both bettors are required to put up a
deposit. Examples of the former include lottery, racetrack,
or casino betting, examples of the latter include poker pots
or office betting pools. This money is not a gambling loss
until such time as you actually lose the bet. If you win
the bet, the return of your deposit is neither a winning nor
a loss.
Example: I "buy" a lottery ticket for $1. If I lose, the
state keeps my $1 deposit to cover my side of the bet, and I
have a $1 gambling loss. If I win and the ticket pays $20,
the state returns my $1 deposit and I have a gross win of
$19. This is not a "net", otherwise you would have to
somehow posit that I both won $20 and lost $1 on the same
bet -- but you can't both win and lose the same bet.
> Suppose, in addition, he placed a bet of $2,000 and lost.
> Are his gross winnings $3,000 or $5,000? Suppose both bets
> were somehow placed in one transaction?
Gross winnings = $5,000, loss = $2,000. Each bet is a
single, separate transaction. You either win or lose (but
not both) each bet, regardless of whether you made an
advance deposit.
> At the extreme, "gross winnings" can't be calculated.
> Consider a poker player who wins 100 hands over the course
> of an evening. He knows how much he started with and how
> much he ended with, but it's practically impossible to keep
> track of winnings and losses on each hand.
I don't see why. Although 100 hands in the course of single
evening does not sound like a very relaxed game to me (at
five hours, this would be one complete hand every three
minutes without any breaks), I certainly could keep next to
me a sheet of paper with two columns: hand number, win/loss
amount. It shouldn't take me any longer to jot these two
numbers down than it does to take a sip of my beer.
Taxpayers are expected to keep track of hundreds of
individual business auto trips or meals, why should poker
hands be any different?
-Mark Bole
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ------------------------------------------------------- >>
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Posted by Seth on August 13, 2007, 10:23 pm
Please log in for more thread options > Seth wrote:
>> Suppose, in addition, he placed a bet of $2,000 and lost.
>> Are his gross winnings $3,000 or $5,000? Suppose both bets
>> were somehow placed in one transaction?
> Gross winnings = $5,000, loss = $2,000. Each bet is a
> single, separate transaction. You either win or lose (but
> not both) each bet, regardless of whether you made an
> advance deposit.
What if I make a deal with a casino, where I hand them
$7,000 and the terms are: "If A and B win, I get $14,000.
If A wins and B loses, I get $10,000. If B wins and A
loses, I get $4,000. If A and B both lose, I get $0."
Sure, that looks like a $5,000 bet on A and a $2,000 bet on
B, but it's really one more complicated bet.
>> At the extreme, "gross winnings" can't be calculated.
>> Consider a poker player who wins 100 hands over the course
>> of an evening. He knows how much he started with and how
>> much he ended with, but it's practically impossible to keep
>> track of winnings and losses on each hand.
> I don't see why. Although 100 hands in the course of single
> evening does not sound like a very relaxed game to me (at
> five hours, this would be one complete hand every three
> minutes without any breaks),
When I used to play, that would be slow. Most hands don't
take that long.
> I certainly could keep next to
> me a sheet of paper with two columns: hand number, win/loss
> amount. It shouldn't take me any longer to jot these two
> numbers down than it does to take a sip of my beer.
>
> Taxpayers are expected to keep track of hundreds of
> individual business auto trips or meals, why should poker
> hands be any different?
Taxpayers don't take hundreds of individual business trips
one evening while they're half-drunk.
There's also precedent that if you walk into a casino, buy
$10,000 worth of chips, gamble for a while, and cash out
$30,000 worth of chips and leave, you have $20,000 gross
winnings (as the W2G form the casino gives you will assert),
not maybe $120,000 gross winnings and $100,000 gross losses.
So if you play poker for chips, why shouldn't the same
apply?
Seth
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ------------------------------------------------------- >>
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